RAJKUMAR DAMANI,MUMBAI vs. CIT 2, MUMBAI
In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal held that the CIT's revision under Section 263 was not justified. It found that the AO had applied his mind to the issue and made an inquiry, even if the appreciation of facts might have been different. Improper appreciation of facts by the AO is not a sufficient ground for revision under Section 263.
What were the facts?
The CIT invoked Section 263 to revise an assessment order, believing the Assessing Officer (AO) failed to properly consider disallowance under Section 14A for interest expenditure. The AO had made a disallowance of Rs. 2,80,277, but the CIT felt an additional Rs. 57,80,070 in interest expenditure should have been considered.
What were the issues?
Whether the CIT was justified in invoking Section 263 to revise an assessment order where the Assessing Officer had made an inquiry, albeit with potentially different appreciation of facts, regarding disallowance under Section 14A?
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
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- CIT v. Fine Jewellery (India) Ltd.93 citing372 ITR 303 · 2015 · HC
Income Tax Appellate Tribunal, MUMBAI “D” BENCH, MUMBAI
Before: SHRI SHAILENDRA KUMAR YADAV, JUDICIAL & SHRI RAJESH KUMAR.
PER SHAILENDRA KUMAR YADAV, J.M: This appeal has been filed by assessee against the order of Commissioner of Income-Tax - 2, Mumbai, dated 28.03.2013 for A.Y. 2008-09 on following grounds:
ITA No.3354/Mum/13 A.Y. 08-09 [Shri Rajkumar Damani vs. CIT] Page 2
“1. The Hon’ble C.I.T. erred in treating the assessment order passed u/s 143(3) as prejudicial and erroneous to the interest of the revenue and further erred in invoking the provision of section 263. 2. The Hon’ble CIT erred in setting aside the order with the direction to the Ld. I.T.O for reconsidering the issue relating to the disallowance u/s 14A r.w. Rule 8D in respect of the interest expenditure of Rs.57,80,070/-.
The Hon’ble C.I.T. erred in holding/directing the Assessing Officer to calculate the amount of disallowance u/s 14A r.w. Rule 8D by taking the entire amount of interest paid including the interest which was having direct nexus with business income and not earning exempt income.”
In this case, Assessing Officer completed assessment order u/s.143(3) assessing the total income at Rs.3,48,55,447/-. While computing income, Assessing Officer worked out the disallowance u/s.14A read with Rule 8D at Rs.2,80,272/- as under:- I Expenses directly attributable to Nil exempt income II Interest “NOT” directly N.A. attributable to exempt income (A X B/C) III 0.5% of average value of 0.5% of Rs.2,80,277/- investments Rs.5,60,55,329/- Total Disallowance u/s.14A Rs.2,80,277/- r.w.r. 8D
Later on, it was observed that assessee had incurred interest expenditure of Rs.57,80,070/- which was not considered for disallowance u/s.14A. In view of above, disallowance u/s.14A worked out to Rs.16,35,646/- in case, said interest
ITA No.3354/Mum/13 A.Y. 08-09 [Shri Rajkumar Damani vs. CIT] Page 3
expenditure incurred taken into consideration. Therefore, assessment passed by Assessing Officer was considered erroneous and prejudicial to the interest of Revenue. In response to notice u/s.263, assessee filed written submissions inter alia submitting that it is an investor as well as trader in shares. During year, assessee purchased and sold shares from share broker, namely, IL&FS Investment Financial Services Ltd. As per terms and conditions, if there was a delay in payment towards the purchase consideration of shares, assessee was required to pay interest for the period of such delay. It was submitted on behalf of assessee that out of interest of Rs.57,80,070/- debited to profit and loss account, the amount of Rs.57,76,041/- was paid to IL&FS. In this regard a copy of interest account appearing in books of assessee was enclosed for ready reference. Since, shares purchased through IL&FS have been treated as stock in trade and profit there from has been duly shown in profit and loss account, the provisions contained in Section u/s 14A would not be applicable to the interest paid in respect of these shares. CIT having considered the submission on behalf of assessee observed that Assessing Officer has not applied his mind on the issue. He has not given any reason either in body of the assessment order or in assessment records as to why the above interest expenditure of Rs.57,80,070/- was not considered for disallowance u/s.14A. CIT was of the view that Assessing Officer has made assessment without making proper inquiry,
ITA No.3354/Mum/13 A.Y. 08-09 [Shri Rajkumar Damani vs. CIT] Page 4
so, the order was to be held erroneous in so far as it was prejudicial to the interest of revenue. Accordingly, same was set aside. The matter was restored to Assessing Officer with direction to consider the issue relating to disallowance u/s.14A r.w. Rule 8D of Income Tax Rules in respect of interest expenditure of Rs.57,80,070/-.
Before us, learned Authorized Representative submitted that all the details were filed before the Assessing Officer during assessment proceeding and all details of interest were also placed on page 14 of paper book, certified by both authorities including Assessing Officer and he also filed final accounts as placed on page 3 to 13 of the paper book duly certified and relied upon the written submissions made before CIT dated 21.03.2013 and submitted that CIT was not justified in deleting the order of Assessing Officer. The revision of the order passed u/s.143 and setting aside it by CIT with direction to ITO for re-considering the issue related to disallowance u/s.14A r.w. Rule 8D in respect of interest expenditure is bad in law. Similarly, same should be quashed. On the other hand, learned Departmental Representative supported the order of CIT.
After going through rival submissions and material on record, we find that assessee is an individual regularly assessed to tax by concerned Income Tax Officer. The return of income for year under consideration was filed on 26.09.2008
ITA No.3354/Mum/13 A.Y. 08-09 [Shri Rajkumar Damani vs. CIT] Page 5
for total income of Rs.3,45,10,910/-. Assessment was completed on 30.12.2010 for a total income of Rs.3,48,55,447/- and demand of Rs.4,46,810/- was raised. The difference in total income as per return of income and as per assessment order was due to an addition of Rs.2,80,277/- by disallowing expenditure u/s.14 r.w. Rule 8D . The basis of calculation of disallowance u/s.14A r.w. Rule 8D was stated in the assessment order in para 8. While working out the amount of disallowance u/s.14A r.w. Rule 8D, ITO has looked into the matter thoroughly with regard to disallowance u/s.14A r.w. Rule 8D and he restricted the amount of disallowance up to 0.5% of average value of investment i.e. 0.5% of Rs.5,60,55,329/-. It is not in dispute that assessee has placed all details with regard to interest as appearing on page 14 of the paper book and assessee has reached to the certain conclusion after appreciating the facts on record. We find that Hon’ble Bombay High Court in case of CIT vs. Fine Jewellery (India) Ltd. [2015] 372 ITR 303 (Bom), wherein Assessing Officer during assessment proceedings, sought details in respect of expenditure incurred for building brand. After examining the details holding part alone was in capital nature. In proceedings under provisions of 263 of Act, Assessing Officer’s order was not found erroneous and prejudicial to interests of Revenue and revision on ground that entire expenses for building brand capital in nature, revision u/s.263 was held not justified. All details called for were furnished in ITA No.3354/Mum/13 A.Y. 08-09 [Shri Rajkumar Damani vs. CIT] Page 6
assessment stage. Revision is not justified on the ground that Assessing Officer has not properly appreciated the facts before him on account of said no application of mind by Assessing Officer. Assessing Officer has appreciated the facts as per facts before him. Improper appreciation of facts by Assessing Officer cannot be held proper ground for holding the order of Assessing Officer erroneous as well as prejudicial to the interest of revenue under the provisions of Section 263. Provisions of 263 of Act can be invoked. In case of no enquiry on issue by Assessing Officer. The improper or less enquiry cannot be valid basis of invoking provisions 263 of Act. Inquiry on particular issue is subject outlook of concern Asessing Officer. Subject outlook may vary person to person. In view of above discussion, order of CIT cannot be sustained same is quashed.
As a result, appeal filed by assessee is allowed.
Pronounced in the open Court on this the 27th day of October, 2015. (RAJESH KUMAR) JUDICIAL MEMBER Mumbai: Dated 27/10/2015
S.K.SINHA
ITA No.3354/Mum/13 A.Y. 08-09 [Shri Rajkumar Damani vs. CIT] Page 7
आदेश क" ""त"ल"प अ"े"षत / Copy of Order Forwarded to:- 1. राज"व / Revenue 2. आवेदक / Assessee 3. संबं"धत आयकर आयु"त / Concerned CIT 4. आयकर आयु"त- अपील / CIT (A)
"वभागीय ""त"न"ध, आयकर अपील"य अ"धकरण, मुंबई / DR, ITAT, Mumbai 6. गाड" फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार, आयकर अपील"य अ"धकरण, मुंबई ।
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